Duke buys Calpine plant as merchants exit Florida

OREANDA-NEWS. March 19, 2015. Duke Energy Florida is seeking federal approval to purchase the 590MW Osprey Energy Center from Calpine as merchant generators see no opportunity for profit in the state's utility-dominated power market.

The Osprey transaction is part of Duke Florida's plan to replace generation lost from the damaged 800MW Crystal River 3 nuclear unit and from capacity reductions planned at two coal-fired units in 2016 to comply with federal environmental standards and the 2018 retirement of aging natural gas fired-fired units.

The sale also indicates the drastic steps independent power producers appear willing to take to exit the market.

Calpine is prepared to pay Duke a \\$36mn termination fee if the Osprey deal is not approved by regulators. NRG Energy mothballed its 463MW Osceola plant in St. Cloud, Florida, in January and is considering dismantling and relocating the plant to another market.

Duke only agreed to buy the 10-year-old gas-fired Osprey plant after Calpine and NRG intervened in the solicitation proceeding, convincing Florida regulators that Duke could buy an existing plant cheaper than its self-build proposal.

Duke withdrew its original plan to build two simple-cycle combustion turbines totaling 320MW at its Suwannee plant and after considering both plants, negotiated with Calpine for Osprey.

In a recent filing, Duke asked the Federal Energy Regulatory Commission (FERC) to act on the transaction before 1 August, saying it needs expedited approval so that it still has time to build the Suwannee units by 2017, if necessary.

Osprey began operating in 2004 after Calpine secured a 10-year contract with Seminole Electric Cooperative. Under Florida law, only small merchant plants could be built at that time without a long-term contract.

Since Osprey's contract expired in 2014, Calpine has been unable to find a buyer for its output, according to the FERC application. Calpine said Osprey was losing money until signing a two-year tolling agreement late last year with Duke as part of the purchase.

The future for merchant plants "outside, and remote from, any organized market is not promising, particularly when, as is the case in peninsular Florida, the load-serving utilities are pursuing self-build projects" that reduce the need for purchased power, Calpine senior vice president Todd Thornton said in the filing.

Without a sale, "there is a substantial likelihood that the Osprey energy center will be shut," Thornton said.

Calpine struck a deal to sell six power plants in the US Southeast to LS Power in 2014, but LS was unwilling to purchase Osprey due to Florida market conditions.

Duke, Florida's second largest utility, said the state is recovering from the 2008 recession. Summer 2017 demand is projected to reach 9,307MW.

Without the Osprey purchase or the Suwannee units, Duke's 2017 reserve margin could fall short of the required 20pc.

Florida regulators will hold a hearing in June on the transaction.